Aspen affordable housing getting pricey
December 22, 2007
ASPEN ” When is affordable housing no longer affordable?
Aspen’s historic $18.25 million purchase of the BMC West property for the sole purpose of affordable housing closed Dec. 17, raising questions by some observers who say that it simply cost too much.
The preliminary price estimate for each unit is just over $600,000, which includes land and construction costs.
How to subsidize the 100 or so units planned to be built on the 4.6-acre parcel has yet to be hashed out. But if the city sells them at their projected price of approximately $242,000 each, it will be out of pocket at least $350,000 for each apartment.
The school district, the hospital and the public bus agency have been asked to be partners in the project, and the heads of each entity will determine within the next month the number of units they might need and if they can afford them.
“It would be our intention that these would be business transactions between the city and the partnering entities,” said Assistant City Manager Bentley Henderson. “We would be offering them at the same price it costs the city with no subsidy or discount.”
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It will be up to each entity on how to offer the units to their employees and how much they will subsidize them.
“These can be structured creatively,” said Tom McCabe, executive director of the Aspen/Pitkin County Housing Authority. “We could come up with a half-dozen scenarios.”
Henderson and other city staff will be developing a financial pro forma for the development, which will include a three-acre parcel that the city owns next to BMC West, but hasn’t had the access to it until now.
Officials believe with the additional land, the steep price tag of BMC West is justified.
“When you look at the whole piece together, it could be more affordable,” said Diana Sirko, superintendent of the Aspen School District.
Sirko said she and the school board are looking at all possibilities to house their employees, including building on existing land the district owns and refinancing its current assets because there is little money in the budget for housing.
“At this point, we would be leveraging some of the resources we have,” Sirko said, adding that she recognizes the city’s proposal is an expensive proposition.
“For those other entities it could be tough, including us,” she said.
Like the school district, Aspen Valley Hospital is considering how much it needs on the BMC West property and at what price. AVH CEO Dave Ressler said capital would have to be raised because the hospital doesn’t have much in its budget for housing.
“There has to be economies of scale and efficiencies,” he said. “Even with the costs, I have to believe it will still be economical [at BMC West].”
Ressler recognizes the high land cost but, by bringing in additional partners, it is a more fiscally sound endeavor.
“I think it’s a good move,” he said.
Ressler said he and his board of directors also are contemplating what can be done at other properties the hospital owns.
That’s also the case with the Roaring Fork Transportation Authority, which has been asked to partner with the city on the BMC West property.
RFTA CEO Dan Blankenship said his organization is examining the best use of its money and where to house its employees affordably. If it’s determined that it’s at the BMC West property, creative financing will be key.
“Without us looking at the numbers and talking to the city more, it’s hard to say with any certainty whether RFTA, with its limited budget, can be a player in this project,” Blankenship said. “If we can’t afford the subsidy we might not be able to go that route.”
City officials have gotten their fair share of criticism over the purchase of BMC West, but they don’t apologize for the risky and controversial move. They argue that as land prices continue to rise, it was the last best opportunity to acquire a parcel that size, which will be used for the greater good of the community.
“People are quick to judge,” McCabe said. “It’s a new way of doing business and if there is some interest in land, they are saying ‘let’s buy it’ and stop the appreciation clock.
“It’s a good investment because if they might not want the opportunity they can sell it. It’s not such a bad strategy in my view. I think it’s smart.”
City Councilman Dwayne Romero said the purchase and subsequent development of BMC West is an investment and strategic move in protecting Aspen’s middle class.
“It’s the first step in a 25- to 50-year effort,” he said, adding an “intelligent and well considered” master plan will occur for the area. “I know it’s a bold move but think of what that subsidy would look like in 25 years.”
Tim Semrau, who ran unsuccessfully for mayor against Mick Ireland this past spring, said he isn’t surprised that city officials are justifying the BMC West purchase. Nevertheless, Semrau said he believes it was a reckless and irresponsible use of public money.
Semrau, as well as others, argue the price of the property far exceeds market value, especially considering land at the ABC sold this year for $30 a square foot. BMC West was purchased at more than $90 a square foot.
The property has development restrictions through covenants established by John McBride, who developed the Aspen Airport Business Center located next to BMC West. The covenants regulate how dense the development can be and how the housing can be designed.
“In my mind, no one in the world would pay more than $10 million for BMC West,” Semrau said, adding city officials, through other land purchases this year, have depleted the housing fund and will have to come up with tens of millions dollars more to develop the properties.
“When the city comes forward asking for millions and millions more in tax money and bonds to fund this, hopefully people will remember this,” Semrau said.
He also criticizes the process in which the land was bought because no outside appraisal was done and no master plan was completed publicly. He also said the purchase was rushed ” the terms of the sale only lent 30 days for due diligence and 15 days to close. Industry standard is at least 90 days, if not more, Semrau said.
Dave Bellack, counsel for the Aspen Skiing Co., said the city government has effectively driven up comparable land prices as a result of the BMC purchase. As a result, it has widespread implications within the real estate market and development industry throughout Pitkin County.
While the Skico is open to discussions of being a partner in the housing project at BMC West, no one in the company has been approached by city officials. The Skico also hasn’t paid the kind of subsidies the city is suggesting. Snowmass Club Commons, employee housing for Skico workers, came out to be $200,000 a bed at the most, Bellack said.
“Where the economics become difficult is the high land costs,” he said. “All I can say is, God bless them.”
The city government has been buying land whenever it can for the eventual development of affordable housing. It’s part of a larger strategy that the City Council in September directed staff to pursue.
In the past few months, City Hall has purchased three other parcels specifically for affordable housing: 802 W. Main St. is a 9,000-square-foot parcel that was bought for $3.7 million; 488 Castle Creek is 35,895 square feet and cost $5.4 million; and 517 Park Circle is 14,458 square feet and was purchased for $4.15 million.
Semrau said he believes those properties were bought well above market value. Semrau, a developer who has ties to the real estate industry, said 802 W. Main St. was sold for $2.1 million six months prior to the city buying it ” a $1.6 million difference. At 488 Castle Creek, the property was sold six months prior for $3.4 million ” a $2 million difference.
“This $35 million spending spree is more dollars than it is sense,” he said. “They overpaid $10 million, significantly fueling the high real estate prices they all condemn.”
Semrau said what would have been more fiscally responsible would have been to do an analysis of what’s left in the housing fund and base how many units can built off of the amount of money available. Or as a back-up plan, develop on land already owned by the city.
“They’ve blown all the money in the housing fund,” he said. “Is that fiscally responsible? No.”
Last week, City Hall’s Henderson interviewed candidates to fill a newly-created position: An affordable housing project manager who will be responsible for handling all aspects of pushing the projects to fruition, including financing, potential partnerships with other entities, preliminary design and acting as a community liaison. The position will pay close to $100,000 annually.
Building affordable housing on all properties identified by the city would cost hundreds of millions of dollars. The city’s housing plans likely will mean going to the voters in November 2008 to approve a bond to pay for hundreds of more units.
“What if people vote ‘no’ on bonding?” Semrau said, adding the government is becoming the biggest developer in Aspen. “The word around the real estate community is if you have an unbuildable, incredibly lousy property that you can’t sell, raise the price and take it to the city.”